THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

ERIN BURNETT, CNN HOST, ERIN BURNETT OUTFRONT: All right, thanks, John. We've got breaking news from Washington. The GOP payroll tax cut bill just passed the House. We'll get the headline on that in a moment.

Also, tech threat, the warning from Google's Eric Schmidt on Iran's downing of the CIA drone, part of our exclusive interview and the first time a TV show has gone inside Google's New York headquarters.

And danger from the east. Presidential candidate Jon Huntsman takes on China, slamming Beijing as anything but an ally. Wait until you hear what he would do to Congress. Let's go "OUTFRONT."

I'm Erin Burnett. Out front tonight, breaking news, federal failure. Gridlock reigns in Washington once again. The payroll tax cut proposal passes the Republican House. So why do we say failure? Well, the Republican bill included a controversial oil pipeline that the president has said he would veto. So pass, smass. We're at square one.

The Congress again playing chicken with the clock. There are just 18 days left until the tax cut expires. If it does, the average American will pay about $1,000 more in taxes next year.

Now, this may not be economic Armageddon, but because the tax cut is popular for everyone, both parties really want to pass it. So why are they failing? The bottom line, in one afternoon we found a way to compromise and get this done with the help of Robertson Williams at the nonpartisan Tax Policy Center. Here goes, what we call a decent proposal. If you extended the payroll tax cut for only people making under $75,000 a year, the price tag would be about $48 billion. That's less than half of the cost of extending it for everyone.

And we can pay for it with two things -- charging mortgage lenders a little bit more, and charging millionaires more for Medicare. That's called means testing.

This compromise actually avoids the two issues that Ds and Rs have made third rail toxic no comprise zones, the pipeline, why this house passed Bill at this instant will not pass the Senate and will get a presidential street veto, and the millionaire surtax that the Republicans say is a deal breaker. What we have is just a plain old compromise. Senator Rand Paul is a Republican from Kentucky and he joins us tonight. Senator Paul, good to see you.

SEN. RAND PAUL, (R) KENTUCKY: Good to be with you, Erin.

BURNETT: All right, what do you think about our decent proposal?

PAUL: Actually, you might want to run for office, because that's a pretty decent deal, actually, and I could probably support that.

The interesting thing is I think your characterization of the pipeline is being controversial or not being part of compromise, I would disagree with that, though, because many Democrats do support it. It is a way to create energy jobs in our country, 20,000 new jobs. The AFL-CIO, which is not typically a Republican organization, supports it. So really there is some bipartisan support for this, and most of the Democrat senators I think in that region of the country are for it.

BURNETT: And there are some and obviously -- I talked to some people who live around there, who are Republican, who are concerned. But I hear your point. There is some bipartisan support for that. But given that there is not enough and that the Republicans know it is a deal breaker to put it in there, why bother?

PAUL: Well, you know, the compromise is in the view of the beholder. For example, Social Security is $6 trillion short. I think reducing the revenue stream into the Social Security trust fund is a mistake. But I'm willing to go along with this if it is paid for and if it will create some jobs.

So putting a pipeline -- allowing the pipeline to be built in the United States, which is allowing energy production and transfer of energy is something that helps me come on board. It is part of what I consider to be the compromise because I think reducing the funding for Social Security is not a good idea.

BURNETT: But how does the pipeline pay for the payroll tax cut?

PAUL: Well, it ends up bringing into a job creation and we have had a payroll tax cut for a year or so now and we really haven't had much job creation. We have lost two million jobs since president Obama came into office. So really what he's been doing hasn't been working. It's been making it worse.

BURNETT: So -- but those jobs, however many there are, and I've seen the numbers, they could be significant for the pipeline, but it takes a while, right, to have that actually pay for this tax cut. So in the meantime, in the meantime, what would you put in there? Like we said that decent proposal where you had the mortgage lender idea and means testing of Medicare, there is a lot of ways to do it as I'm sure you're well aware, right. New rules for retirement benefits, pay freeze, all those things would get you there. Pick or choose.

PAUL: The means testing for millionaires was part of the Republican proposal about a week ago. BURNETT: Right.

PAUL: I'm a big fan of means testing for Medicare and means testing for Social Security. I like your idea of only applying the payroll tax cut to the lower wage earners. I think there are ways we can target things and those do sound like compromises that would take facets from both sides.

But you have to keep the big picture in mind. Social security is $6 trillion short and you are reducing the revenue stream for Social Security. Overall it is bad policy.

BURNETT: And obviously referring to the fact that the payroll tax itself funds Social Security. Senator Paul, are we going to get a compromise here by the time the clock runs out, and the clock really runs out at the end of this week because people want to go home for vacations?

PAUL: Right. Well, they have already passed a spending Bill in the house and it is ready to come over really it is the Democrats who are refusing to compromise because they won't allow a vote on the spending bill which would allow the government to stay open. We're willing to keep government open, we're also willing to find a payroll tax compromise. And I think there is a compromise out there we could find.

But I don't think putting in the pipeline in there and saying that's not compromising is the correct narrative. I really think the pipeline is part of creating jobs. The president says the payroll tax reduction is to create jobs, which it didn't do the last time, but he is still saying it would. And I do like keeping money in the private sector, but also think energy production is very important for our country. And some have estimated if we actually began drilling more and mining more we could create a million jobs in this country.

BURNETT: And I've seen those numbers. But what I'm -- all I'm suggesting is that if you look at the situation as a voter, you say, all right, I may love or hate the pipeline or love or hate a millionaire surtax, but I know that neither one of those will actually pass, for better or for worse, right? So why not toss them out the window for now, just for now, so you can get a compromise and get this payroll thing done.

PAUL: If this was something very esoteric. If the pipeline was something that one person out of 100 in Congress supported it overwhelmingly supported. If you had a vote in the Senate and you allowed it to pass with 51 votes, you would probably get 55 votes tomorrow for that pipeline. There is at least seven or eight Democrats who will vote for it and probably every Republican.

So really it is not something way out there that we should say, well, we'll never compromise on that. I think the pipeline passes on a straight up or down vote. Let's have that. If they want to separate it, separate it out and we'll make it a separate vote and won't may the payroll tax contingent on it. So let us vote first of all on the pipeline and I think you'll see the pipeline pass. BURNETT: I like that idea of stripping it out. I know the kind of first versus the second thing matters a lot. I appreciate you taking the time, Senator Paul. Thanks so much for coming "OUTFRONT."

PAUL: Thank you, Erin.

BURNETT: And let's bring in Gloria Borger now, CNN's chief political analyst. Gloria, what do you make of what Senator Paul had to say? Obviously. all the rhetoric of the order in which you do things, but it seems there are compromises to get this done.

GLORIA BORGER, CNN CHIEF POLITICAL ANALYST: Sure. Look, I think tonight what we saw is that Republicans had to find a way to get to yes on this payroll tax cut because they know very well that they were handing the Democrats an issue. If you're for tax cuts for the wealthy, why aren't you for tax cuts for the middle class? The speaker of the House understood that very well.

So they throw in the pipeline, which is an interesting issue to debate because there is a political point to be made that the president put off a decision on this because it's a very tough decision. So he put it off until after the election. They want to force the decision. They think it is a job creator.

The question that I have that you are getting at with the senator is how relevant is the pipeline to the payroll tax cut? You know, you can put anything on a bill and say it is relevant because it creates jobs. But it was just a sweetener to get Republicans to go along. So the idea of separating it out might make an awful lot of sense. But, you know, the president has threatened to veto, right?

BURNETT: Exactly. I'm just curious, Gloria, if you have a tea party member like Senator Paul come on the show and say, look, I like giving the payroll tax cut to people who earn the least and not giving it to the wealthy. I'm on board with that. I'm on board with means testing Medicare, which essentially means the rich pay more. Why don't the Republicans do that and say, look, we're not -- stop with this class warfare talk. It seems like they're missing a PR opportunity.

BORGER: Did he say he doesn't want to give it to the wealthy, though?

BURNETT: He said he would do that compromise.

BORGER: But here's the problem with your -- the $75,000 cutoff, I think, which is that is that middle class? The president has promised to extend tax cuts for the middle class. And an argument can be made that was it a family earning $75,000 or an individual earner, is not middle class, that it needs to go to, you know, higher than that, that the number needs to be higher or you would be leaving out the real middle class in this country. And so, you know, I think that's an argument the Democrats would have with your solution.

BURNETT: My point is you could find it -- BORGER: You know what, everybody -- I mean, everybody knows what this solutions are. You know that and I know that -- means testing Medicare, absolutely, raising the retirement age on Social Security gradually, absolutely. Everybody, if you sat them in a room in a vacuum, they know what the answers are. They're just can't come up with them before -- this close to an election. They're hardly able to do it at all. But this close to an election, you know, it plays into presidential primary politics. And after all, Barack Obama does want to get re-elected, I hear.

BURNETT: All right, Gloria Borger, thank you very much, appreciate it. And viewers, please let us know what you think about our decent proposal.

Next on OUTFRONT, nice Newt -- three weeks before Iowa. He says he has a kinder, gentler campaign. And the latest polls crossing just a few moments ago. That's next.

And from Iran to China -- which actually is a greater risk to the United States of America? Jon Huntsman weighs in on that. We'll be back.

(COMMERCIAL BREAK)

BURNETT: Amazon announced today that the Kindle Fire is getting an update to address some user complaints. Some customers who purchased the Fire say the power button is too sensitive, the touch screen isn't sensitive enough, and there should be physical volume control buttons.

On the positive side, customers seemed very happy with the price, about $300 less than the cheapest iPad 2. They're also happy about the weight, which brings us to tonight's number -- a billionth of a billionth. That's the difference in weight in grams between an empty Kindle and a full Kindle according to John Cubeitalis. He's a professor at the University of California at Berkeley. His research is based on the fact that electrons holding day have a higher level of energy. And you know what Albert Einstein proved, higher energy means higher mass. If you use a Kindle formula, it is estimated that all of the electrons required to make the entire Internet work weigh about 50 grams, which is about the same weight as a medium sized egg or a strawberry. Wow.

Time now for our political play of the day with John Avlon.

JOHN AVLON, CNN CONTRIBUTOR: That's right, Erin. Today's political play of the day is jump ball. We're talking about those 12 key battleground states up for grabs in the 2012 election. These states aren't red or blue. They're purple. These swing voters in these swing states determine who wins or loses presidential elections in America. Back in 2008, President Obama ran the table with swing states, catching all 12 of them. That accounted by an average of eight percent, and that accounted for his landslide electoral victory back in that presidential election year.

But a new poll by Gallup and "USA Today" shows the president has some real problems in these battleground states. If the election were held today, their poll shows Mitt Romney would beat president Obama by 48 to 43 percent. And Newt Gingrich, similarly, would edge him out 48 to 45, a smaller lead and in fact within the margin of error.

But nonetheless this trend is not the president's friend. This is something that his campaign folks in Chicago should be paying a lot of attention to and worried about.

And let's look at this. Democrats in the key 12 swing states, numbers have gone down from 35 percent in 2008 to 30 percent today, a five percent decline in affiliation. Republicans on the other hand, they have stayed steady, flat lined, 27 percent to 27 percent.

Here is the real story, independent voters, the largest and fastest growing of this segment rocketing up from 35 percent to 42 percent of the electorate in these key swing states to date. That's where the president is having some problems. He's got to connect with independent voters and so do the Democrats. Otherwise they are in real trouble.

In the presidential election there is another trend as well, voter enthusiasm. This poll shows that Republicans, 61 percent of them say they are fired up and ready to go for the presidential election, while Democrats are slightly underwater, 46 percent. The base needs to be stoked.

But at the end of the day, big picture, it is the swing voters in these key 12 swing states that are going to determine the winner of the election. These are purple battleground states, and Democrats got to realize they got to make up through some purple haze and fight for these states, because, you know what, if they don't treat this poll as a major wake-up call, these purple states will be not their enemy, but -- not their friend, but their enemy big time.

BURNETT: That's amazing.

Let's add to the conversation here. David Frum, former Bush speech writer, and Maria Cardona, former communications director for the DNC. Good to have both of you with us. David Frum, what do you make of this, especially when in the general election the president beats Newt Gingrich handily, but Mitt Romney barely.

DAVID FRUM, FRUMFORUM.COM: We need to hear more "Purple Haze" on CNN, first of all.

BURNETT: Yes, that's true. That's what we're here for.

FRUM: Look, this is going to be the fifth bad Christmas in a row. Families all across the country have been promising their kids, wage earners have been promising their loved ones, themselves, that maybe next year will be better. It's five in a row since December 2007. The patience of the country is fading under the onslaught of unremitting bad economic news.

And, of course, in large parts of the country, we're having a cold winter. That means heating bills. That is what is grinding the president. And he keeps giving speeches, but I can remember from the Bush days, after a while, you can give the greatest speech in the world, people stop listening. They want to see the results. And where are the results?

BURNETT: That's true. But right now, I mean, John, he's doing better in the heads to heads, which don't necessarily mean that much until you know who he is really running against, but he's doing a little bit better than he was.

AVLON: That's right, nationwide. But at the end of the day, the two dynamics that really matter in elections and the primaries is not how you're doing nationwide necessarily. It's how you're doing in those key early primary states, how you run that gauntlet. It comes down to those swings. That's why the independent number always matters the most.

BURNETT: Independents would be much more likely to vote for -- if Mitt Romney is the guy --

AVLON: If the election were held today, they're going to be a tougher sell for Newt. One early poll showed Mitt Romney beating President Obama 55-37 among independent voters. That's one of the reasons why some objective viewers say he's more electable. But Republicans think Newt Gingrich is more electable.

BURNETT: Maria, what is your view here, especially since you've been through this and seen what happens when you have -- in your case is was Hillary Clinton and Barack Obama going state by state down to the wire before we knew who the nominee would be.

MARIA CARDONA, DEMOCRATIC STRATEGIST: Well, I guess I'll say a couple of things, first to John's point about the swing states. This is not a surprise. This is not a surprise to the White House or this president. This president will be the first one to tell you and he has said it very recently that he thinks he's the underdog in this race. And the economy does make him the underdog in this race. So they are running like the underdog, as they should be.

And what he is doing right now is what he should be doing, which is delineating the differences between what his vision is of a plan that will actually create jobs, up to two million by independent analyses, his American jobs act, versus a Republican plan, any of the plan that the GOP candidates are putting out that will do nothing to create jobs and everything to continue to protect millionaires and billionaires. That's number one.

The second thing I would say about all of the swing states is that many of those are in Latino-rich population states. And right now the GOP is in a lot of party with the Latino community. And we know that no GOP candidate can get elected to the White House without at least 40 percent of support among Latinos, and they barely make it out of the low 20s right now. So that's a huge challenge for the GOP moving forward.

BURNETT: All right, I'll have to hit pause there. Interesting the GOP has a challenge on the Hispanic side. The president does too. That will be a topic for another conversation. Thanks to all.

Next OUTFRONT, though, a big box chain facing charges of racism, and it started with the reality show. The backlash and a special guest ahead.

Plus, 'tis the season. We can't resist this story. It's all about Christmas cards, and wait until you see what we have in store for you.

(COMMERCIAL BREAK)

BURNETT: And now a story we can't resist. Even with the rise of e-mail, there are still some people, thank god, who send out Christmas cards. Politicians tend to do it. But British Prime Minister David Cameron is in the news now for the people he left of his Christmas card list.

Cameron's 2010 list was recently acquired by the British newspaper "The Guardian." And despite sending out more than 1,400 holiday cards last year, some leaders didn't make the cut. Not on the list, the leaders of Syria, Zimbabwe, and Egypt, Hugo Chavez, and for some reason, Vladimir Putin did not get a card this year. Nope.

One person who was on David Cameron's list was Canadian Prime Minister Stephen Harper, whose own card actually made the news today up north because of the similarities to his card from last year. In fact, if you look closely, you will see the while his wife is wearing a new outfit, the prime minister and his kids are in the exact same clothes as last year. We know he's fiscally conservative, but surely it could have been a new wardrobe, or is it really different a different backdrop?

So the most unusual Christmas card of the year is the one sent out by the mayor of San Juan, Jorge Santini. That is a beautiful family, but that may not be what you notice. His smiling family is standing around a stuffed leopard killing an antelope. Who are we to tell them how to separate the holidays? It is Christmas. You could have gone for a leopard killing a reindeer. We just couldn't resist.

(BEGIN VIDEO CLIP)

BURNETT: Still out front, the OUTFRONT five.

The China equation.

UNIDENTIFIED MALE: They're not an ally of the United States and we should never assume that they are.

BURNETT: All American Muslim. UNIDENTIFIED MALE: If by Friday that apology doesn't come, we're going to ask the CEO to step down.

BURNETT: All this OUTFRONT in our second half.

(COMMERCIAL BREAK)

BURNETT: We start the second half of our show with stories we care about, where we focus on our reporting, do the work, and find the "OUTFRONT 5".

Number one, breaking news tonight, the House passing the payroll tax cut extension. But it was a Republican plan and the president has said he will veto it due to the pipeline attachment.

Here is Speaker John Boehner just a couple of moments ago.

(BEGIN VIDEO CLIP)

REP. JOHN BOEHNER (R-OH), SPEAKER OF THE HOUSE: Now, I think the White House needs to update their clock because it is now time for the Senate to act.

(END VIDEO CLIP)

BURNETT: Well, Democratic leadership in the Senate say they will not pass the measure. Republican Senator Rand Paul came OUTFRONT tonight. He said there's a compromise out there that would work and even suggested -- and this is really important -- he suggested that he would go ahead and pull the Keystone pipeline provision out of a deal to get one done. That's a key headline tonight.

Number two, AAU president Louis Stout responded today to sexual abuse allegations against the former head of the organization, Bobby Dodd. In an exclusive interview with CNN, Dodd said he contacted police about the allegations against Dodd before two accusers appeared on ESPN's "Outside the Lines" on Sunday.

(BEGIN VIDEO CLIP)

LOUIS STOUT, AAU PRESIDENT: Unlike Penn State, unlike Syracuse and the Citadel, we acted immediately. We didn't wait six months to find out if this was a protective thing because of the executive director. We acted immediately

We didn't wait six months to find out if this was a protective thing when we called up the executive director. We acted immediately. We formed our own internal investigative process.

And then once we found out who the accusers were, we immediately went to the police department. We didn't sit on this. No one has acted any properly than the Amateur Athletic Union regarding these accusations.

(END VIDEO CLIP)

BURNETT: Two men told ESPN Dodd abused them during the 1980s while he was a YMCA coach in Memphis.

Number three: Southwest Airlines announced it's ordered 150 Boeing 737 MAXes. That's a new more fuel efficient version of Boeing's most popular plane. An airline analyst told OUTFRONT Southwest will save about $4,000 in fuel costs per flight. The airline also will save on maintenance because the new engines don't require as tight of a maintenance schedule.

Number four: retail sales climbed at their slowest rate in five months, signs consumers aren't that excited, even though it is the holiday season. One retail analyst told us shoppers could see a massive wave of promotions starting this weekend, intensifying into Christmas Eve.

And speaking of retail sales, Best Buy today reported a 13 percent fall year to year income, raising concerns about electronics this holiday season.

Well, it has been 130 days since the U.S. lost its top credit rating. What are we doing to get it back?

Those retail sales not something that makes things look good. We're depending a lot on the Fed and today, there was a Fed meeting, Fed Chief Ben Bernanke chairing it. It was also his birthday today, by the way, if you're counting.

This morning, Federal Reserve officials voted to keep short-term interest rates close to zero until mid-2013. A lot of people have been critical of the Fed's decision to essentially print money to get America out of this debt crisis.

Republican presidential candidate Jon Huntsman has been among the critics. He stopped by today earlier and I asked him why.

(BEGIN VIDEO CLIP)

JON HUNTSMAN (R), PRESIDENTIAL CANDIDATE: I think anyone who is running the Fed during a time of economic trouble and distress, particularly when they can point to quantitative easing programs, not one, but two, where we pushed hundreds of billions of dollars into the economy with nothing to show for it, but more debt on the balance sheet, no uplift in terms of our performance, no improvement really in the joblessness, you know, somebody has got to take responsibility for that. And as people look around, they're no doubt going to assign blame to the Fed.

(END VIDEO CLIP)

BURNETT: Well, I also asked Governor Huntsman about that U.S. stealth drone that went down in Iran. I wanted to know what he thought, as a former ambassador to China, about whether the Chinese are going to get their hands on that drone sophisticated technology. And I wanted to know as a presidential candidate what he thought of President Obama's response to this incident.

Here is what former Vice President Dick Cheney told me yesterday about the president's response, to just ask for the drone back.

(BEGIN VIDEO CLIP)

DICK CHENEY, FORMER U.S. VICE PRESIDENT: The right response to that would have been to go in immediately after it had gone down and destroy it. You can do that from the air. You can do that with a quick air strike. And in effect make it impossible for them to benefit from having captured that drone.

I was told that the president had three options on his desk. He rejected all of them. They asked to return it and they aren't going to do that.

(END VIDEO CLIP)

BURNETT: So, how would Jon Huntsman have reacted?

(BEGIN VIDEOTAPE)

HUNTSMAN: Well, if I had an option to go in and take it out because of the proprietary nature of the technology, you know, clearly that would be an attractive option. You want to do that as president. I don't know all of the circumstances. It's unfair to kind of look back and say, you know, would have, could have, should have, when you don't have all the information in front of you.

But when you got one or I think 10 or 12 in our fleet that you lose in Iran, you know, you don't want to --

BURNETT: This is the most sophisticated technology.

HUNTSMAN: Presumably it is. And the thing that I like about what we're talking about here is that we're penetrating Iran. We have eyes on. And I think that's a very good thing for the United States to be doing right now. They got the centrifuge spinning and at some point, they're going to have enough low enriched product from which they can make highly enriched product.

BURNETT: Do you think at this point, unless we're going to commit, and I'm curious whether you would commit to full on military conflict with Iran, that we have to accept that they will eventually be a nuclear power. It's more important to figure out how to deal with that.

HUNTSMAN: Yes.

BURNETT: Than it is to yell and scream about it happening when it's inevitable anyway.

HUNTSMAN: Well, I think they've already made the decision to go nuclear. I think the mullahs in Tehran have already looked at the world and they've said, North Korea, they've got nuclear weapons, nobody touches them. They looked at Libya and I think they've said, they gave up their program in exchange for relationships internationally. They want the prestige and the leverage that goes with being a nuclear power. BURNETT: So, if push comes to shove and this is important, I'm not saying this is something you do tomorrow if push comes to shove, if there was an uncertainty, required troops invasion, you'd do it?

HUNTSMAN: I can't live with the implications of not doing it. I can't live with the thought of what a nuclear Iran brings to the region and what they said about Israel, which is our centerpiece alliance in the region. I can't live -- I can't live with the world with a nuclear Iran.

So, then, you say, what do you do? And realistically, you got to have all options on the table. You got to be prepared to use all elements of national power.

BURNETT: When it comes to this drone, there is confusion and uncertainty whether Iran has the ability to reverse engineer what appears to be its crucial technology, the ability to evade radar. Now, I know somebody who wants that technology who doesn't have it, but has a J-20 Joint Strike Fighter that desperately wants to evade radar and that, of course, is China.

You know China better than anybody. Does China talking to Tehran right now, do you think, looking at this drone, figuring it out?

HUNTSMAN: Of course, they're going to -- of course, they're going to get all the information they can. And, you know, it's why we need eyes on China as well. Every step they take toward advancing their missile fleet, their submarine fleet, we need to know what those steps are so we can create countermeasures. That's just the way this works.

But it is also why we need a relationship with China that speaks to a fortified military to military kind of dialogue. We haven't had that in a very, very long time. We need greater understanding of where China is putting its military priorities, what they're spending money on, a little more about military transparency.

But make no mistake about it, the Chinese will take it for all they can.

BURNETT: And they are a rival. I'm not saying that they're trying to be offense, but they're our a rival, right?

HUNTSMAN: Of course they are. It is a very competitive relationship there. We've got a lot at stake in the Asia Pacific region. The 21st century will be about the Asia Pacific region. It's three-quarters of our trade. It's the rising military power.

And I have to say that, you know, Afghanistan is not our future as a country. And Iraq realistically is not our future as a country. Our future is how well prepared we are to compete in the 21st century. And that's economics, that's education, they're going to play out largely over the Pacific Ocean.

BURNETT: Would you tell China and -- or is our hand not strong enough to tell China, look, stop buying Iran's oil, stop doing business with Iran, stop going and looking at our drone technology there, or the helicopter that went down in the Osama bin Laden raid, that the Pakistanis showed the Chinese. They don't act like an ally of the U.S. and doesn't seem like because the debt situation, we have the ability to tell them to jump off a cliff.

HUNTSMAN: Well, they're not an ally of the United States and we should never assume that they are. We have a very transactional relationship. We have a very competitive relationship. And they're going to play every angle they can against us to try to learn more about what we're doing and what we're up to and what our leading technologies are. And they're going to try to take us for a ride on the trade side.

We have to have a leverage to combat that at every corner.

BURNETT: One final question, term limits, a fascinating thing that you brought. We did the numbers here. And your suggestion, I believe, is two terms for Senate, six terms for House. So 12 years.

HUNTSMAN: Right.

BURNETT: Assuming you can't swap back and forth from House to Senate, that's 12 years.

HUNTSMAN: Right.

BURNETT: Thirty-nine senators would go right now if that took effect, 164 of the 435 member of the House, with another 24 who couldn't run next year including Eric Cantor. That's about 43 percent of the House, gone.

HUNTSMAN: I like it. We have two major problems in this country. We have an economic deficit that is $15 trillion cancer that's metastasizing and is going to shipwreck the next generation unless we do something about it, and we have a trust deficit.

The American people no longer trust their institutions of power, starting with Congress and 8 percent approval rating, I mean, give me a break. What can you do?

BURNETT: Make accountants and the media and lawyers look really good.

HUNTSMAN: We need term limits and we need to close the revolving door that allows members of Congress to ride on through to trade in on their insider information and their relationships in becoming millionaires. I say it adds to the cynicism that we as the American people have toward our institutions of power.

BURNETT: All right. Well, thank you very much. Appreciate it.

HUNTSMAN: Thanks, Erin.

(END VIDEOTAPE)

BURNETT: All right. Twelve-year term limits for Congress. Big idea of term limits.

John Avlon is joining us now.

JOHN AVLON, CNN CONTRIBUTOR: That is a big idea. I think what he's harnessing is that anger at Congress right now. You know, you got a 9 percent approval rating and 90 percent re-election rate. So, a lot of people say, look, let's make it a citizens' legislature, let's stop that revolving door and impose term limits.

BURNETT: Newt Gingrich used to be for term limits.

AVLON: He used to be for it. This guy did. Ross Perot championed term limits in 1992. It's part of the Republican Contract for America when Newt Gingrich was running --

BURNETT: Why do people back off it?

AVLON: Well, because -- one word, California. It's not just the cynicism of electeds who want to hold on to power. Take a look at California. You have a six-year term limit. And what it's done is it's empowered bureaucrats and lobbyists. It has not help make the state any less dysfunctional. Dysfunction increased.

So, there are folks who backed off it and say, maybe you need to increase the term limits to something more reasonable. So, it becomes a matter of proposition. This would take the constitutional amendment and I'm sure members of Congress would want to be grandfathered in.

But it's got a lot of new popular with the Tea Party. That's one thing that Jon Huntsman is trying to tap into.

BURNETT: That's interesting. So, California, I mean, obviously, they also have all of these, you know, individual things that they pass that cause problems. But I see your point. So, maybe it's not as simple as this is just a great idea.

AVLON: It's a feel good and it channels people's frustration and that's understandable. But you got to figure out, you know, it is the foremost important words in politics, up to a point, what's that wise balance to strike.

BURNETT: All right. Thank you, John Avlon.

Let us what do you think on term limits? You can always reach us on Twitter.

Saying one thing, doing another. We called every lawmaker on Capitol Hill, asked if they would support a bill to curb insider trading by members of Congress. That's right, insider trading by members of Congress. Their answer is not terribly surprising, their actions, though, stunning. We'll explain.

Also tonight, a second keeping them honest, a botched gun operation known as Fast and Furious. One of the guns found next to the body of an ATF agent; 1,400 guns went missing. Well, tonight, one member of Congress saying -- calls it a manufactured controversy by the Second Amendment NRA Tea Party movement. We're going to have him on and ask him what exactly is manufactured about 1,400 guns that went missing. We're keeping them honest.

Also, crime and punishment, young men whose children were allegedly abused by this man, former Penn State assistant football coach Jerry Sandusky. They were ready to tell their stories in court today. And a surprise move, they did not. We'll tell you why and speak with their attorneys.

Those stories in tonight's "Ridiculist" at the top of the hour, Erin.

BURNETT: All right. Thank you very much, Anderson.

Well, coming up on OUTFRONT, Jerry Sandusky, you just mentioned him, his alleged victims were waiting to talk at the preliminary hearing. We're going to talk about exactly what happened with their attorneys.

Also, un-American? A home improvement chain is pulling the plug on commercials on a reality TV show. If you haven't heard about this, you're going to hear about it from our special guest. That's an exclusive, coming up next.

(COMMERCIAL BREAK)

BURNETT: We do this at the same time every night, our "Outer Circle." We reach out to our sources around the world.

And tonight, we begin in Belgium where a deadly grenade attack and shooting spree left five dead. And 119 injured.

Nic Robertson is in Liege.

Nic, what do you know about the attacker?

NIC ROBERTSON, CNN SENIOR INTERNATIONAL CORRESPONDENT: Erin, this is where the attacker is believed to have stood, throwing his grenades, firing down on what was on a that time the crowded Christmas market. According to a security source, I've told, reports for police station here, questions of sexual harassment and possible rape. He's already spent 40 months in jail on charges of supplying and growing large quantities of cannabis and also racketeering weapons -- Erin.

BURNETT: Nic, thank you.

And next to Iraq where one of the deputy prime ministers spoke out against his country's prime minister, Nouri al-Maliki and the Obama administration.

Arwa Damon is in Baghdad tonight.

And, Arwa, you spoke with him. What did he tell you?

ARWA DAMON, CNN INTERNATIONAL CORRESPONDENT: Al-Mutlak, a Sunni deputy prime minister is absolutely shocked, he said, that President Obama would introduce Prime Minister Nouri al-Maliki as being the leader of a democratic state, because al-Mutlak says individuals like himself have absolutely no power. He claims that al-Maliki has no intention of moving forward towards building up a power-sharing government.

He went on to say, and I quote, "Al-Maliki is playing a game between Iran and the United States. There will come a day when the United States will realize this and grow to regret its decision to back al-Maliki." Erin?

BURNETT: Arwa, thank you.

Well, the top secret U.S. drone still in Iranian hands tonight despite President Obama's request for its return. Iranian President Mahmoud Ahmadinejad today said Iran has been given, quote, "a gift." And Iran made a lot of progress using unmanned spy planes.

One person who knows a lot about technology told us exclusively that Iran should not be under estimated. That's Eric Schmidt, the executive chairman of Google.

(BEGIN VIDEOTAPE)

ERIC SCHMIDT, EXECUTIVE CHAIRMAN, GOOGLE: You always worry that the Iranians have somehow broken into some of the encrypted software that's used to control things. The Iranians are unusually talented in cyber war for some reason we don't fully understand. They recently were able to take over some of the traffic in Denmark through a clever hack, which nobody quite understood is what they did. So, Iranians are clearly a cyber security threat in our future.

BURNETT: What did they do in Denmark?

SCHMIDT: In Denmark, they actually redirected some of the traffic that was going on the Internet into Iran and then back to Denmark.

BURNETT: So, it's almost like a test to see what they could do.

SCHMIDT: It was a test. And a lot of cyber security appears to be countries testing to see what kind of access they can get. Can they go intercept information? They don't actually steal the information or maybe they do, but they put it back, so you'll never know that they saw it.

BURNETT: So when people are saying -- well, there has been a lot of skepticism, the drone is intact. And people said, well, Iran doesn't have the ability to intercept it and take it down. They would have to borrow that from China. But it sounds like what you're saying, well, maybe not. They really may have figured this out. SCHMIDT: Again, all that information is classified so we're not going to know. But there is always the possibility that communication that was telemetry of what was encrypted or intercepted in some other way. You always worry about that and you never know.

(END VIDEOTAPE)

BURNETT: Well, Schmidt allowed our cameras, the first ever look behind-the-scenes at Google's New York headquarters today. We talked about America's next great inventor, the hottest new tech item and the China threat. We're going to be more of that exclusive interview on Thursday.

But this morning, the cameras were waiting, so were the crowds. But in the end, Jerry Sandusky accused of preying on the boys as former Penn State assistant football coach stunned everyone in court today.

Facing charges of sexual assault, Sandusky waived his right to a preliminary trial, a move that left families enraged. Sandusky's attorneys said their case is strong and insisted his client is not a monster.

(BEGIN VIDEO CLIP)

JOE AMENDOLA, ATTORNEY FOR JERRY SANDUSKY: We're ready to defend, we've always been ready to defend. Today's waiver has nothing to do with conceding anything. There have been no plea negotiations. So, there will be no plea negotiations. This is a fight to the death. This is the fight of Jerry Sandusky's life.

(END VIDEO CLIP)

BURNETT: With us now, an attorney for another boy who has accused Jerry Sandusky of abusing him. Marci Hamilton joins us.

HAMILTON: Well, it seems like the Sandusky team is incapable of doing anything but hurting these victims one time after another. For the 10 that had prepared to testify, this was devastating. It was not what they'd been prepared for.

And I'm still baffled. I was in the courtroom at the time. I'm still baffled by what the brilliant strategy was behind waiting until everybody was in the courtroom.

BURNETT: Yes. I mean, just from at least the strategic perspective, that seems bizarre, right?

HAMILTON: It's completely bizarre. And if the reports are accurate, they've known this maybe even as early as Sunday. I don't understand why you would still let all these people come in, unless you wanted a press conference of enormous proportions. There were maybe 30 satellite trucks, 200 reporters.

It was very effective for those purposes, but it was not in the interest of the victims. Frankly, I don't see how it helps Sandusky at all.

BURNETT: And your client, as we're calling client number -- or person number 11, boy number 11.

HAMILTON: Right.

BURNETT: Is he preparing to testify, to tell his story?

HAMILTON: Well, he is already working with the authorities. He's been meeting with them and telling his story. His story predates all of the other stories, and so it will take a little bit longer, but he's just very relieved to have come out at all and to let people know that Sandusky hurt him a tremendous amount and that the world should know it and Sandusky should stop talking about his innocence.

BURNETT: If you had to say one thing that stands out the most to you from what your client said happened, what would it be?

HAMILTON: He was outraged that this was the way things were going to come down. But he was also -- you know, the victims have mixed feelings. He was also relieved because for 10 of these guys, they didn't have to recount everything again.

BURNETT: And next, the story we first brought to you on Friday about Lowe's pulling its ad from a show about Muslims in America. Russell Simmons, our exclusive guest.

(COMMERCIAL BREAK)

BURNETT: Backlash continues over home improvement company Lowe's decision to pull its ads from the TLC program "All-American Muslim." It's a reality show.

And this is a story we were really upset about last week. We brought it to you on Friday. And the show follows five Muslim families in Dearborn, Michigan. But after the conservative Florida Family Association filed a complaint with Lowe's saying the show manipulated Americans, the company pulled its commercials off the show.

Today, entrepreneur Russell Simmons took up the charge. I spoke to him earlier and ask when he first heard about Lowe's decision.

(BEGIN VIDEOTAPE)

RUSSELL SIMMONS, CHAIRMAN, RUSH COMMUNICATIONS: I was in Australia, and I got an e-mail from the Rabbi Marc Schneier, who is my partner and he's the chairman of the World Jewish Congress in America. But also, he is president of an organization which I chair, the Foundation for Ethic Understanding. And he was outraged and he sent me some details.

And I was shocked to hear about this Lowe's group.

BURNETT: And I was surprised. Lowe's originally made this decision in part, as the company acknowledges, because of a statement from the conservative group, the Florida Family Association. Let me read it to you, Russell, because I want to get your reaction to this, which is why Lowe's originally pulled their ads from the "All-American Muslim" show.

It says this, quote, "All American Muslim is propaganda that riskily hides the Islamic agenda's clear and present danger to American liberties and traditional values."

Were you shocked that a company the size of Lowe's could pull their ads based on a statement like that?

SIMMONS: You know it doesn't take long for a whole country to spiral out of control. This country right now is relatively tolerant of other religions. I mean, this country is built on religious freedom. It's our First Amendment. And so, we've been careful to guard those liberties for everyone.

But as we've seen with the mosque discussion of whether or not they could have a prayer center, an interfaith prayer center, there is a growing sentiment of Islamophobia in this country. But a statement like that, that we can't have a positive Muslim family on television because it misrepresents -- in that case then the Christian show that I produce with Reverend Run, all A students. That's right, all A students, and a good family. It was an honest family. It was a good representation of that family, but it wasn't all Christians.

It would be outrageous for someone to say why would you have such a good Christian family on TV? So, it's shocking to me that they'd let a bigoted group such as that group to influence their decision. But all I'm asking for now is that they retract their choice, that they go back and make a statement, one, to the Muslim community, apology and, two, that they would not only advertise on that show, although I've offered to buy all the inventory and now it looks like it's pretty much sold out, but never mind the inventory. Do something that makes amends to the Muslim community.

And this should not be something that the Muslim community does for themselves. This should be something that other Americans do because they respect -- they know that their rights are not valuable unless they give those same rights to others.

BURNETT: Are you also supporting a boycott of Lowe's?

SIMMONS: Yes, I think we should stop buying their product pretty much now.